China's securities regulator will let the nation's 1,381 publicly traded companies give shares, stock options and warrants to directors, senior managers and other employees, according to draft rules obtained by Bloomberg. Stock options and warrants are rights to buy a certain number of shares at a specific price during a set time period.

``It's good for the long-term profitability of a company, because when employees own stock, they really care,'' said Bruce Richardson, head of research at Evolution Securities China Co. ``Employees who know the real operations of a company should exercise proper control. It's the right thing to do.'' Richardson says he owns shares in his company.

China is trying to improve the quality of companies to boost investor confidence after stock markets slumped for four years to eight-year lows, partly dragged down by corporate scandals and mismanagement. China's $345 billion stock market has lost almost half its value from a peak in June, 2001.

Guangdong Kelon Electrical Holdings Co. said on July 19 that it is being probed by the securities regulator for the second time in two years. In 2003, the regulator said the refrigerator maker inflated its 2002 profit. Kelon's shares have slumped 62 percent in Shenzhen this year. Shanghai AJ Corp., a listed financial company, said last month that former Deputy General Manager Liu Shunxin had been sentenced to five-year's jail for illegally taking deposits.

Work Harder

``A company's most valuable assets are its employees,'' said Qiu Zhicheng, Shanghai-based banking analyst at Xiangcai Securities Co. ``If they own shares, they'll work harder, benefiting both the company and themselves. In a healthy market, share prices are the most effective yardstick of a company's performance.''

Citic Securities Co., China's biggest publicly traded brokerage, said on July 19 that it planned to award its employees 30 million shares as incentives, once rules allowed.

The company's shares have gained 0.2 percent this year, to 5.92 yuan. The Shanghai Composite Index has dropped 20 percent.

Sinochem International Corp., a unit of China's biggest chemicals trader, has said it plans to grant managers 20 million shares. The company said today it will give more stock to minority shareholders to compensate for losses tied to state sale plans. Its stock, suspended today, are down 10 percent this year at 5.55 yuan.

China Minsheng

China Minsheng Banking Corp., which has delayed a $740 million share sale in Hong Kong this year, said in March that it will adopt an incentive program that links compensation for senior managers to the value of the company's overseas stock. The lender doesn't offer shares directly, board secretary Mao Xiaofeng said.

The draft rules say that companies that haven't converted all their equity to tradable stock can't take part in the incentive program. The government wants publicly traded companies to convert about $230 billion of mostly state-held non-tradable shares to ordinary stock that can be bought and sold on the nation's two exchanges.

`Push Forward'

``The regulator is doing everything it can to push forward the share structure reform,'' Xiangcai's Qiu said.

Companies will be allowed to grant at most 1 percent of shares outstanding to an individual, according to the rules. Independent directors and supervisors won't be allowed to take part in any incentive plans.

A compensation committee, affiliated to the board, will be responsible for a company's incentive program. Companies should also hire independent financial advisers for any program, the rules state.

( Source: Bloomberg )